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Longboat Key Wednesday, Feb. 20, 2013 5 years ago

Our View: Businesses don't pay taxes


Business tax cuts and corporate-recruiting incentives will be prominent policy issues for the Legislature this year.

For one, the mainstream media’s reporters will make them so; they hate both with a passion.

Lawmakers are also targeting these topics. Democrat legislators already are positioning themselves as potential obstructionists to Gov. Rick Scott’s priority to eliminate Florida’s sales tax on machinery and equipment. It’s valued as a $140 million tax cut.

And now that Republicans no longer have a supermajority in the House, Scott will need Democrats’ votes to eliminate the sales tax.

Predictably, the Democrats see an opportunity to make Scott beg and grovel. The governor is heading into the next election cycle, and you can bet Democrats are going to do whatever they can to derail Scott’s record.

Scott’s pitch is the elimination of this tax will help make Florida more attractive to manufacturers. And, duh, if Florida can attract more manufacturers, there will be more jobs.

Some Democrats and the profit-hating media see this tax cut primarily as a sop to a special interest. Indeed, whenever you say “tax cut” in Washington or Tallahassee, there is always a loud chorus whining how cutting taxes and tax rates will “cost” government.

As they see it, the state apparatus is the loser. Tax cuts mean lost revenue must be made up by taxing someone else.

What they don’t see is the concept from the other side. That lowering taxes is a winner for the economy, the state and the taxpayer, whether that taxpayer is a corporation or individual. As Steve Forbes often tells his audiences, taxes are a cost, just as paper and laptops are. And as the old saw goes, the more you tax something, the less of it you get.

The anti-tax cutters also are not convinced that lower tax rates or the elimination of a tax will lead to greater tax collections that replace and surpass what was given up.

It’s a mystery why the following is so difficult to envision: Eliminate the machinery sales tax, and the taxpayer — be it company or individual — will be able to keep more of his money (keyword: “his,” not the state’s). And he, not Tallahassee or Washington, will be able to decide how best to put his capital to uses that benefit him and others. This is what capitalism is all about — helping each other with free, peaceful, fair trade between two parties. That trade, in turn, fuels more trade, more economic activity. And it leaves out the government middle man, the bureaucracy that takes its slice of the tax and then redistributes what’s left.

Although it makes sense to say those government workers keep the economy going when they spend their wages, they’re not creating wealth. They’re toll takers and redistributors.

Manufacturers, on the other hand, are wealth creators, especially if they are selling and shipping their products across state lines. In those instances, every time a Florida manufacturer makes a sale, say, in Georgia or Alabama, the buyer is sending new money into Florida. It’s adding to the business’ and the state’s wealth.

Lawmakers often also seem to forget, in the case of business taxes, that businesses don’t pay taxes. They pass the cost of all taxation onto their customers in the prices of the goods and services they sell.

That’s the concept that should be reiterated in Tallahassee this spring when the Legislature is in session. Businesses don’t pay taxes, consumers do.

Or think of it this way: Compare two states — one with a sales tax on machinery and one without. Then do the math and the analysis. The results should be obvious. The manufacturer that isn’t required to pay a machinery sales tax will have more capital and be more competitive than the one paying the tax.

This is really an old story. But, unfortunately, it must be told like Aesop’s Fables — again and again. Unlike a fable, though, this story is real and has been shown and proven many times. Dr. Arthur Laffer and Stephen Moore — the former a Milton Friedman protege, the latter a longtime economist and economics journalist — have shown many times in their book, “Rich States, Poor States,” what should be intuitive: States with falling tax burdens always outperform and have higher and faster growing personal incomes than states with rising tax burdens.

What’s more, Laffer and Moore provide a clear road map for having a healthy economy with their “10 Golden Rules of Effective Taxation.” If only every lawmaker would live by the Golden Rules.

+ End corporate welfare
Few can argue with Gov. Rick Scott’s agenda. It’s the same one he promised in his 2010 election campaign: improve Florida’s business climate to attract jobs and lower the cost of government. Scott has since added improving Florida’s schools and making college more affordable.

In his quest to attract companies and improve the climate for job creation, the one area we differ with Scott is his support of Enterprise Florida, the public-private corporation that helps recruit companies to Florida.

Scott has proposed in his 2013-2014 budget to increase the state’s economic development spending from $111 million to $278 million. Although it is unclear how much of that is earmarked toward corporate incentives and tax breaks, however much it is is too much. It’s corporate welfare, and it’s morally wrong. No business deserves an unearned benefit.

+ How about traffic control?
Tom Barwin, the city of Sarasota’s new city manager, and Bernadette DiPino, the city’s new police chief, are still learning the nuances of the city. Here’s one to which we wish they would pay attention: The weekend traffic backups on John Ringling Causeway at the height of Season.

They are as predictable as the sunrise at this time of year.

And for years, we have urged the city manager to reallocate traffic-control officers to help alleviate traffic backing up and creeping inch by inch from U.S. 41 to St. Armands Circle and vice versa.

This is not just an annoyance for motorists. It’s also an economic and image issue. Visitors are sitting in that traffic, and that leaves an impression. When visitors have bad experiences, they don’t come back.

The excuse at City Hall is always a lack of funding. No, it’s a misallocation of priorities. This should be a priority. It’s only for a short time, but an important time.

In Arthur Laffer and Stephen Moore’s fifth edition of “Rich States, Poor States,” the economists show again that states with falling tax rates and tax burdens outperform those heading in the other direction. Here are their “Golden Rules of Taxation”:

1. When you tax something more you get less of it, and when you tax something less you get more of it.
2. Individuals work and produce goods and services to earn money for present or future consumption.
3. Taxes create a wedge between the cost of working and the rewards from working.
4. An increase in tax rates will not lead to a dollar-for-dollar increase in tax revenues, and a reduction in tax rates that encourages production will lead to less than a dollar-for-dollar reduction in tax revenues.
5. If tax rates become too high, they may lead to a reduction in tax receipts. The relationship between tax rates and tax receipts has been described by the Laffer Curve.
6. The more mobile the factors being taxed, the larger the response to change in tax rates. The less mobile the factor, the smaller the change in the tax base for a given change in tax rates.
7. Raising tax rates on one source of revenue may reduce the tax revenue from other sources, while reducing the tax rate on one activity may raise the taxes raised from other activities.
8. An economically efficient tax system has a sensible, broad base and a low rate.
9. Income transfer (welfare) payments also create a de facto tax on work and, thus, have a high impact on the vitality of a state’s economy.
10. If A and B are two locations, and if taxes are raised in B and lowered in A, producers and manufacturers will have a greater incentive to move from B to A.
Source: “Rich States, Poor States”

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